Over Fifty Group last week announced it’s exit from the Australian reverse mortgage industry, effective immediately.

Although the credit crunch and the subsequent rising cost of funds was partly to blame,  their exit is probably mostly a function of mixed sentiment between previous management and shareholders over the long-term direction of the company. They have cited the capital intensive nature of reverse mortgages as a major deterrent for further operation, and will now focus on funds management and investment. They have no plans to re-enter the market in future.

Over Fifty Group had a good product offering, and their exit is regrettable for consumers and the industry alike. Given the (hopefully temporary) previous withdrawal of Bluestone and ASF, product choice has diminished significantly over the last 3 months. Now, perhaps more than ever, having a qualified reverse mortgage broker to guide you through the remaining lenders is crucial.  

This a question that an increasing number of people are beginning to ask themselves in the current economic climate. With the cost of living continuing to rise, and the prospect of any rise in the government aged pension looking very unlikely, more and more people are seriously considering equity release and reverse mortgage finance.

If you own your own home, and are over 55 years of age you may qualify. However, it will also depend on where your house is located and how much it is worth.  You can take funds as a lump sum, monthly instalment or line of credit and in many cases the loan can be structured so that it does not affect your pension.

There are a couple of simple things you can do to ensure that your reverse mortgage loan is working for you as efficiently as possible:

• Draw the funds out slowly, or gradually over time. This will reduce the ultimate interest bill. With some lenders you can do this via monthly instalments paid directly into your bank account
• Make payments to reduce the loan balance or interest bill, if you can afford it
• Make sure you have enough ‘cash reserve’ available for future use. If you have not established sufficient cash reserve (undrawn funds) at the outset, you may have to pay ‘top-up fees’ to the bank if you run out of money and need to go back for more. Why pay more bank fees than you need to?
• Avoid lenders with regular, or monthly fees

To check your reverse mortgage go here.

In Australia, as long as you own your own home you can get a reverse mortgage from as young as 55, however at that age you would be restricted to just 10% of the home value. As you grow older each year, you can get usually get a an extra 1% of the home value (depending on the lender).

For instance,  if you are 70 years old you would be eligible for 25% of the home value. For further assistance on whether you qualify and how much you could get, go here. 

Yesterday the Reserve Bank decided to keep interest rates on hold yet again. Whilst this is good news, there is a growing school of thought that rates may come down later this year as the economy begins to slow considerably.

This would provide relief for many households, and would also make reverse mortgages more attractive to many senior Australians who are currently refraining from releasing equity until interest rates go down.